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Alternative instruments for smoothing the consumption of primary commodity exporters

  • Kletzer, Kenneth M.
  • Newbery, David M.
  • Wright, Brian D.

Countries that depend on a single primary export for their foreign earnings are likely to experience sharp fluctuations in export earnings and their underlying wealth, because of the instability of all primary commodity markets. As part of structural adjustment, several countries have liberalized their trade regimes, so domestic producers are no longer insulated from international price fluctuations. This paper concentrates on the management of country-level consumption risk, and considers actions which the government might undertake to reduce the cost of that risk. The paper reviews the costs of export price instability, with some reference to the empirical magnitudes. It considers the role of conventional instruments, including loans, price stabilization measures, and futures contracts. Particular attention is paid to the potential use of futures rollovers for longer-term price protection, and the effect of production response on that protection. The paper also discusses"commodity bonds"and dynamic consumption smoothing paths and offers conclusions.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 558.

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Date of creation: 31 Dec 1990
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Handle: RePEc:wbk:wbrwps:558
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  1. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc.
  2. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  3. Fishlow, Albert, 1987. "Lessons of the 1890s for the 1980s," Department of Economics, Working Paper Series qt1g7324hr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Holmstrom, Bengt, 1983. "Equilibrium Long-Term Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 23-54, Supplemen.
  5. Kletzer, K.M., 1988. "Sovereign Debt Renegotiation Under Asymmetric Information," Papers 555, Yale - Economic Growth Center.
  6. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  7. Carr, Peter, 1987. " A Note on the Pricing of Commodity-Linked Bonds," Journal of Finance, American Finance Association, vol. 42(4), pages 1071-76, September.
  8. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-82, December.
  9. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  10. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, vol. 92(367), pages 596-614, September.
  11. Campbell, John & Mankiw, Gregory, 1987. "Are Output Fluctuations Transitory?," Scholarly Articles 3122545, Harvard University Department of Economics.
  12. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
  13. Worrall, Tim, 1990. "Debt with potential repudiation," European Economic Review, Elsevier, vol. 34(5), pages 1099-1109, July.
  14. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
  15. Kletzer, K.M. & Wright, B.D., 1990. "Sovereign Debt Renegotiation In A Consumption-Smoothing Model," Papers 610, Yale - Economic Growth Center.
  16. Newbery, David M G & Stiglitz, Joseph E, 1982. "Optimal Commodity Stock-piling Rules," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 403-27, November.
  17. repec:cup:cbooks:9780521326162 is not listed on IDEAS
  18. Schwartz, Eduardo S, 1982. " The Pricing of Commodity-Linked Bonds," Journal of Finance, American Finance Association, vol. 37(2), pages 525-39, May.
  19. Feder, Gershon & Just, Richard E., 1977. "A study of debt servicing capacity applying logit analysis," Journal of Development Economics, Elsevier, vol. 4(1), pages 25-38, February.
  20. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc.
    • Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc.
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